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Couche-Tard Eyes a Possible Acquisition

Canadian retailer looks to increase shareholder value.

May 6, 2008, 08:00 pm

LAVAL, Quebec -- While falling short of its expansion goals in the second half of fiscal 2008, Alimentation Couche-Tard Inc., the largest c-store retailer in Canada and the third largest in the U.S., announced that a "medium-sized acquisition" might take place in the coming weeks.

CEO Alain Bouchard said in a speech to the Canadian Club of Montreal, "I'm puzzled why our stock price has fallen so far through 2007 and again in the past four months, but I know the market is expecting the pace of acquisitions to speed up and wants more action."

In early 2007, the company's stock piqued at almost $28 in Toronto and has since fallen below $15 with declining volume. Despite the Canadian market being strong, especially in the West, margins were falling in the U.S. both for merchandise and gasoline sales.

"There's still plenty of room for growth in the U.S., and we're always looking closely at what's still a fragmented industry," Bouchard told attendees. "But it's not an easy task to negotiate the right deal, and you have to exercise extreme care."

Under Couche-Tard's business model, a medium-sized acquisition would result in approximately 100 stores. Last weekend, Bouchard sent ripples out by announcing a master franchise and licensing deal with GR Vietnam Intl. Ltd. to develop convenience stores in Vietnam using Couche-Tard's Circle K banner.

According to Bouchard, the Vietnamese firm will own the exclusive rights to the Circle K brand for 25 years. "This is a step into one of the world's fastest-growing markets," Bouchard said. "But there won't be any material impact. It parallels our earlier entry into China, where progress has been slowed because the government allows foreign-affiliated stores to sell only international tobacco brands."

In total, The 28-year-old company operates a network of 5,690 convenience stores in North America and 3,600 more in Asia and Mexico. Couche-Tard's latest deals include the addition of approximately 100 stores in Missouri and Illinois.

An analyst with RBC Dominion Securities Inc., Sara O’Brien, estimated the aforementioned purchases will add $400 million to $500 million to Couche-Tard's revenue in fiscal 2009, bringing the total to almost $16 billion. "It suggests Couche-Tard is finding targets within its price range. Further similar additions can be expected over the short term, along with earnings growth when the fourth-quarter results are disclosed on July 8," she said in a statement.